The major suppliers of hardwood chips to South East Asia include Vietnam, Australia, Thailand, Indonesia, South Africa, Brazil and Chile. To date, aggregate chip supply from these regions has been able to satisfy the rapid growth in demand over the past 10 years. However, future export availability from several key regions is increasingly uncertain owing to a combination of declining yields, changing government legislation, and the increased incidence of pest, fire and disease. Supply risks being further undermined by the historic poor rates of return on offer through plantation management; in Australia, record harvests are not being matched by replanting, as the better economic returns on offer from cultivating other crops is incentivising large areas of the planation resource to be restored to arable farming.
Export availability may also be constrained by investment in new pulp capacity in Latin America (Chile & Uruguay), Vietnam and Laos. In Indonesia, the recent start-up of APP’s OKI Pulp & Paper Mills in Sumatra puts further strain on the region’s limited pulpwood supplies, particularly after huge areas of Indonesian plantations were lost to fire in 2015. The catastrophic impact has prompted a radical change in forest management legislation, and the Indonesian government has recently established a Peatland Restoration Agency (BRG) which has a five year plan to restore the peatland ecosystem covering 2 million hectares across Riau, Jambi, South Sumatra, Kalimantan and Papua. Given that over 50% of pulpwood plantations are on peatlands, this has already prompted significant confusion about short term harvest volumes. It seems certain to undermine pulpwood supply in the future as the major plantation owners are forced to relocate to degraded and unproductive mineral soils.
An extreme scenario could see a significant reduction in Indonesian BHKP exports, which are currently running at around 4 million t/y, and could rise to 5 million tonnes through 2018 assuming the OKI mill maintains is current operating rate.
Even if Indonesian pulp capacity is fully utilised, these wood supply issues and those affecting other countries will undoubtedly inflate production costs across the Asia Pacific region as a whole.